CA Retailers Weigh In on Restructuring

In the wake of a summer-long lamenting of the dysfunction, if not outright death, of California's attempt at creating competitive retail electricity markets, the state's small remaining band of nonutility retailers, or "energy service providers" (ESPs), is weighing in with state officials and utilities trying to breathe new life into the state's once-optimistic drive for more market-based energy solutions.

In addition to using a retailers' alliance, ARM (Alliance for Retail Markets), to have their voices heard in the ongoing regulatory investigations and political debates, some of the ESPs are working with San Diego Gas and Electric Co. on a joint promotion program to educate utility customers about their options for switching to a third-party power supplier. It is called SDG&E's "customer facilitation program" and it is tentatively scheduled to roll out next month with a bill insert to all SDG&E customers jointly sponsored by the utility and some of the state's 10 ESPs still operating.

Rebecca Schlanert, governmental/regulatory affairs director for the state's largest ESP, Commonwealth Energy, Tustin, CA, said the program with SDG&E has great potential for customers of all sizes.

"Actually, it is a well-thought-out program to make points to utility customers that: (a) they are not being disloyal if they take a look at a marketer, (b) there are some really big advantages to it, and (c) SDG&E will be there to offer them reliability and if they have a problem, be able to back them up," Schlanert said. "It is a proactive stance telling customers they are not being disloyal and their reliability is not going to change."

Commonwealth is still attempting to come up with some fixed-price electricity deals for San Diego customers still reeling from the price spikes this summer, even though several refunds, credits and legislative retail price caps have returned to most customers most of the excess charges they were hit with in May through August. Commonwealth recently expanded a deal with San Jose, CA-based Calpine Corp. to buy 125 MW of geothermal power from the merchant generator that can be attractively priced as a so-called "green" or environmentally benign source of power.

"If we do market in SDG&E's territory, which we are seriously considering, we would market Calpine's power and when we reached that (125-MW) quota, we would probably quit marketing again," said Commonwealth's Jay Goth, marketing vice president. "We've been working on a deal for SDG&E. We have a great deal with Calpine and look like geniuses now, but last year when we signed the contract, it was a real risk. We're still trying to stay green."

In the meantime, both Goth and Schlanert said Commonwealth has not individually been contacted by state or federal investigators trying to piece together what went wrong this summer and what should be done longer-term to correct the problems. Other ESPs, however, have been contacted, they said.

A few retail marketers received subpoenas from the California Public Utilities Commission last week, Schlanert said, although Commonwealth was not among them. When federal regulators held hearings in San Diego early last month, Commonwealth volunteered to be part of a panel, but another ESP was picked to testify.

"We are certainly involved in offering suggestions," Schlanert said, noting that they are seeking audiences with CPUC commissioners and their chief aides and are working through ARM to communicate their suggestions, which are basically to cut the regulations and let the market work.

"I would say that some form of retail market reform is needed as part of any long-term solutions. There are a lot of things that can be done (correcting the market) if retail providers are allowed to operate freely."

The "reforms" Commonwealth has in mind involve creating more transparency in the market; and eliminating transaction costs and credit costs assessed to ESPs that the competing utilities don't pay. "It makes competition very difficult," she said.

But the major change, according to ESPs, would be to get the utilities out of the merchant function all together and let nonutility firms compete to be so-called "default providers."

"We certainly think the CPUC needs to take a more detailed looked at the role of the default provider," Schlanert said. "They can determine whether that really lies with the utilities or it might be better served contracted out --- bid out by the CPUC (not utilities).

"They (SDG&E) really don't want to be involved in the default provider role, and certainly they are not interested in doing that forever.

"Overall, at Commonwealth we want to see a robust retail market because that is where the consumers are going to benefit the most. We want to see reasonably priced default services to consumers. Reliability is, of course, critical, as is the adequacy of generation. But we need to encourage and nurture the environment instead of regulating it to death."

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